The Government of India has not provided patent protection for pharmaceutical
products since 1970. In the absence of this and any other IP protection for medicines,
PhRMA members face an extremely negative climate for bringing innovative products
through the expensive research and development process and introducing them into
the Indian market. In May of 2002, the Indian Government passed legislation intended
to meet its international obligations under TRIPS, but we remain concerned that some
provisions fall short of TRIPS requirements. In addition, implementing regulations have
not yet been completed, so the law has not taken effect.3 In May, then Minister of
Commerce and Industry Maran explicitly confirmed India's intention to complete
legislative action needed to provide full patent protection for pharmaceutical products in
time for the TRIPS deadline of January 1, 2005.

Data Exclusivity provisions required by January 1, 2000 for all developing
country members of the World Trade Organization (WTO) were not included in this
legislation, though Indian Government officials have made statements in recent months
that appear to acknowledge this obligation for India. PhRMA members also have seen
limited progress in reducing market access barriers discriminating against the U.S.
pharmaceutical industry. As noted during Under Secretary Larson's recent visit to
India, India also lacks the intellectual property infrastructure and capacity to meet
minimum international standards and badly needs technical assistance in this area.

In this context, the U.S. should both pursue a high-level dialogue to promote
compliance with WTO disciplines across the board, including intellectual property, and
at the same time expand international assistance opportunities for the training of patent
examiners, among other urgently needed technical cooperation, to prepare India to
meet its TRIPS 2005 obligations. In light of the passage of legislation intended to meet
its immediate obligations under the World Trade Organization (WTO) Agreement on
Trade Related Intellectual Property (TRIPS), and given the need for technical
assistance and capacity building to support continuing regulatory reform, PhRMA is
upgrading its assessment of India’s intellectual property regime for pharmaceutical
products. PhRMA members urge that India be included in 2003 “Special 301” Priority
Watch List.

Intellectual Property Protection

While India has the right to delay product patent protection for pharmaceutical
products until 2005, PhRMA remains concerned by ambiguities or inconsistencies in
the Second Patent Amendments passed in May of 2002 which do not bring India within
full compliance with its current TRIPS obligations. We also believe that the draft rules,
as published, fail to clarify areas of ambiguity where the 2002 Act may fall short of
TRIPS requirements, particularly in the areas relating to local working, other
compulsory licensing provisions, and the definitions relating to patentability of
inventions. We have sought clarification of the implementing rules, also known as the
sub-legislation or secondary legislation, for the Second Patent Amendments Act.

India has also failed to introduce effective protection for the confidential and
commercially valuable data associated with applications for marketing approval, also
known as data exclusivity. TRIPS Article 65.4 delays the obligation to administer the
formal system of patent examination and registration required by TRIPS Articles 27 - 34
for pharmaceutical and agro-chemical products. Only these TRIPS obligations, and no
others, are affected. Accordingly, the Indian Government is bound by the January 1,
2000 deadline for requirements to respect the confidential protected data of originator
firms, and formal protection for confidential data (39.3). While some positive
statements are emerging from the GOI, the issue continues to be obfuscated by the
local industry lobbies, which appear to confuse data exclusivity with patent term
extensions and then link the issue to the TRIPS and public health debate. In addition,
the Ministry of Health is completely unprepared for adoption and implementation of
data protection, and requires technical assistance along the lines provided in Egypt by
US AID under the Strengthening Intellectual Property Rights in Egypt (SIPRE) program.
We are encouraged, though, by recent Government of India statements to the effect
that India recognizes the data exclusivity obligation and has begun to discuss the issue
at high levels within the cabinet. It is critical that the U.S. continue to press this issue
towards a successful conclusion.

Finally, we continue to believe that India has not acted in good faith in
implementing its obligation to provide Exclusive Marketing Rights (EMR) under TRIPS
Articles 70.8 and 70.9. Using the excuse that it is examining the mailbox application
with regard to patentability under the 1970 Act, a requirement not found in TRIPS, India
is yet to approve a single application for EMR despite a number of qualified applicants.
Both PhRMA members and Indian companies have unsuccessfully sought EMRs for
facially qualified products. The process has been made so non-transparent and
difficult that PhRMA members who have filed for EMRs now have little hope of ever
receiving the rights to which they are entitled as a transitional measure pending full
patent protection. The hurdles placed in front of international companies are higher
than those applicable to domestic EMR applicants.

Non-Functional Patent Office, Lack of Other IP Infrastructure

In addition to the difficult situation posed by lack of patent exclusivity, PhRMA
members are gravely concerned by the absence of needed resources to upgrade
India’s capacity in the patent area. India’s Patents Office is essentially non-functional.
In anticipation of the improvements required by the TRIPS Agreement, there has been
a surge in the filing of patent applications and many more are expected. The Indian
Patents Office, based on its size, degree of modernization and past practices, is and
will be unable to cope with these filings. Recent statistics indicate a backlog of over
30,000 unprocessed applications, which, measured against the average output of the
collective Indian Patents Office, will not be examined or granted well into the latter part
of the next decade.

While we appreciate India’s current efforts to invest in upgrading existing
facilities, underlying problems in India’s patent law render effective patent
administration impossible. The Government of India needs to follow-up its
modernization efforts at the administrative and legislative level to make it possible to
operate a modern patent office in India. The U.S. Government should provide needed
assistance to India as a developing country WTO member for capacity and
infrastructure in this area.

Market Access Barriers

In the area of Drug Pricing, India has recently announced the Drug Policy 2002,
which tries to ostensibly reduce the span of control; it, however, retains some of the
most stringent price controls and monitoring in the world under the rigid provisions of
Drug Price Control Order (DPCO). Moreover, the new policy discriminates against drug
discovery through foreign R & D by exempting for 15 years drugs discovered through
indigenous R & D from coming under the purview of DPCO Drug Price Control Order
(DPCO).

This pricing regime, combined with the lack of any meaningful patent or other
intellectual property protection, makes India a less viable market for research-based
companies from a commercial standpoint, particularly if those companies were to
consider placing the latest and best innovative drugs on the Indian market. Even if the
current impasse on the new DPCO were to be resolved soon, no major improvements
can be expected in the pricing policy. This is because of structural & logical flaws in
the criteria and bases for price-fixing that are and have been inherent in all past &
present DPCO’s. In fact, we do not expect a significant improvement from the new
pricing policy that is underway in India. Our industry would urge any new Government
in India to consider abolishing the DPCO. The DPCO is neither in the interest of the
Indian economy nor of the Indian pharmaceutical industry, nor, and most important, in
the interests of the Indian healthcare consumer. Despite the lowest prices in the world,
70% of the population still has no access to modern medicine.

Import Policies

PhRMA member companies operating in India face high 44% effective import
duties for active ingredients and 66% for the finished products. The Government of
India has stated its intention to progressively lower import tariffs on pharmaceuticals,
particularly with reference to essential medicines. Duty rates, however, remain
unacceptably high, and are still very often being used as a discriminatory protectionist
tool to promote domestic industrial policy. In 1996, tariffs were brought down to 85%
with plans to further decrease rates to 25% by the end of 1999. Progress has been
slow and tariff rates remain currently high. PhRMA urges U.S. negotiators to insist that
tariffs be brought down to zero, the goal of many WTO signatories. As in many other
areas, there is little confidence that enforcement of these new rules will be at the
necessary and appropriate levels.

Standards, Testing, and Labeling

India has little or no regulatory framework for Clinical trials. Though the
Government made a genuine attempt to bring in a radical reform in drug manufacturing
practices in the country by adopting rules for Good Manufacturing Practices (GMP) last
year, the non-transparent and labyrinthine procedures in the Drug Controller’s Office
do not inspire confidence.

In addition, discriminatory problems remain in the area of trademarks, most
specifically with respect to regulations concerning the size and placement of the
generic name on medicines in India. Finally, PhRMA member companies operating in
India have reported arbitrary local FDA decisions.

Damage Estimate

Please see the Appendix for a Charles River Associates (CRA) study which
conservatively estimates losses in India due to the absence of intellectual property
protection at more than $1.7 billion dollars annually. Note also, however, that the
damage caused by the inadequate protection of intellectual property rights in India
reaches beyond direct losses caused by displaced sales in India. Indian bulk
pharmaceutical companies aggressively export their products to third countries where
intellectual property laws are similarly lax. The damage caused to U.S. pharmaceutical
manufacturers due to the deficiencies of the Indian patent regime thus goes beyond
displaced sales in the Indian market, and reaches to the ability of U.S. companies to
compete in other significant markets, especially in the Asia-Pacific and Middle East
regions.

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FOOTNOTE:

3 The Government of India has indicated willingness to clarify some of the ambiguities in the legislation
though the rules process and to this end we have, along with other interested parties, submitted
comments on the rules.